The news that the responsibility to look into the allegations of misconduct by PSU chiefs has been shifted from the Central Vigilance Commission (CVC) to a Cabinet secretary-led committee must be welcomed. In a free market economy, PSU top brass should not be expected to function under the constant fear of one or the other external agency reviewing its decisions by impulse.
What is needed is a bolstering of the internal audit system of these companies and improving their corporate governance standards. The government as the owner of these companies would do well to cease to routinely interfere in their management, provided they offer reasonable dividends and don?t customarily seek fresh funds infusion.
PSUs anyway are subject to a variety of external supervisions which the private sector companies do not have to bother about. The boardrooms of PSUs, especially of the larger ones that are listed and are required to function in an increasingly competitive setting, need more autonomy to react swiftly and adroitly to the commercial world.
For sure, honesty and competence are the two essential prerequisites for the right to autonomy, but imposing a sickeningly intransigent bureaucracy and a plethora of redundant compliance needs on the PSU top management is hardly the way to ensure either of these qualities.
CVC interference is just one of the many ?externalities? that vex PSU boardrooms apart from the normal and unavoidable business-related ones like commodity price cycles, (change in) tax policies and the incertitude over the cost of finance. Senior-most functionaries of PSU are being selected through a political process. The Public Enterprises Selection Board can often delay key appointments, leaving the firms bereft of key managerial and technical leadership for months or even years. Political appointees to PSUs often would fail to meet the twin criteria of honesty and competence. Of course, listed PSUs and those which want to be listed are required to comply with the Sebi?s listing agreement which inter alia stipulates the minimum number of independent directors on the board. Nearly half of the listed PSUs do not even have the minimum number of IDs (Sebi insists on compliance with this requirement at the time of IPOs/follow on offers, but is rather lenient thereafter). Inadequate quality of IDs is as much an issue for PSUs as it is for the private sector.
Another constraint is the meddlesomeness of the administrative ministries. Despite the enhanced freedom to the PSU boardrooms to take investment decisions (thanks to the navratna, miniratna and the proposed maharatna tags), the ministries in many cases continue to practically exercise their control. The government directors on the board of the PSUs are often more equal than others, including the chairman and managing director. It continues to be the practice in many PSUs that if the government nominee (usually a joint secretary or the financial advisor in the administrative ministry) is not able to turn up, the board meetings are postponed only for that reason. Many CMDs are guilty of willful underutilisation of their powers. The PSU boardrooms have over the years become wary of taking decisions that involve commercial risks. Alas, even those PSUs which no longer need any budgetary support are not fully liberated from the fear of the administrative ministry.
True, even in the private sector, it is largely the promoters who are in control. Even the mechanism of independent directors (IDs) are in many cases a sham. Most IDs are the promoters? relatives and friends who cannot be expected to stand up against any wrongs done by the promoter. With the lack of enough transparency in the audit mechanism, there is a limit to what a fair-minded and competent ID can do if the promoter is inclined to commit irregularities as was demonstrated in the Satyam case.
But in PSUs? case, there are many additional layers for oversight. The promoter (the government) can clearly refrain from virtually impeding the growth and progress of these companies by interfering in the most routine of affairs. The CVC has a role to play as a circumspect monitor, rather than a taskmaster.
In addition to their internal audit systems, PSUs are subject to a statutory external audit by the chartered accountants appointed by the CAG. These, along with a professional top-management team, should suffice to ensure efficiency and transparency. (Even the CAG exploratory audit should be a rare event to tackle exceptional circumstances, rather than a norm). As long as the PSUs have their own internal resources to plough back and can borrow at good prices on the strength of their own balance sheet, why should they be asked to take permits from the government for each and every decision?